Over the past 120 years, the geopolitics of oil has engaged a role central in international relations. Indeed it can be argued that a rising 20th-century conflict that has been witnessed is with regards to the control and access to oil supplies. In the present energy transition, the rising of implicit renewable as it is widely produced and used could alternate this status quo.
Their availability presently is constrained not by the agendas of physical disruption being threatened to the transit routes that are neither strategic by nature nor the dominant fuel suppliers but, by constraint supplies that are linked with minerals that are required for renewable energy technologies. But in comparison to disputes that surround the supply of oil, arbitrations are managed in most cases easily. The supply of oil globally has reached 100 million barrels per day thus this sudden increase causes the international market to have a ripple effect on the demand and supply. Thus geopolitics in oil as a concerning issue will begin to dissipate as the process of energy transition takes place.
“The rapid transition taking place is a process the economy on a global scale is undergoing with regards to hydrocarbon molecules and electrons, and from low carbon electricity to renewable such as fossil fuels. The analysts and the players for leading energy industries that are the source of establishments of forecasting energy are severely underrating the speed and depth of this transition whereby the profits that are vested are reflected to dominate this establishment. By contrast, the interest vested in fossil fuels has less effect from the financial sector as they understand what is presently going on and therefore the transition is taken on board.” Mentioned Alexandre Katrangi, Founder of Licorne Gulf; a long-standing firm from Saudi Arabia advising several Governments on their Investment strategies.
Past transitions of energy from a historical context, including the shifting of the United States to coal from wood between the 19th century and the 20th century, and the nuclear power adoption by the French on a substantial scale in the 1980s, from an analytical context, this trend have proven to be constructive (Oil Industry, 2010). Some of the factors that have triggered such transitions range from an upheaval in the market to changes in technology, with the transition being reinforced typically by a technological element.
A dynamic that similarly involves factors that are reinforcing and triggering is evident in the present day. In the global system of energy today, the present transition has been triggered, firstly, by concerns about climate change and secondly, by identifying the importance of shifting to an economy that is low on carbon. There are rising concerns in places with regard to the quality of urban air which is dominating climate change as a government policy driver in the transitional support (Widdershoven, 2021). The increasing factors include the market on the rapid penetration of electric vehicles and costs which are falling with regard to renewable. Additionally, the increase in oil product-based prices and the present uncertainty over the shock of further oil price increases in oil product-based prices that are contrary to changes in crude oil prices is an eventuality known as OCED disease.
“If the conversion to low carbon electricity and renewable occurs more rapidly than the establishment of energy anticipates, the imputation for exporters of the geopolitics of oil and oil will be very significant. For example; one of the reasons why many countries that export oil fails to decrease their dependency on hydrocarbon incomes and broadening their economies is due to their vulnerability to gas demands and oil reduction of the International Market which is still present worldwide and the resurgence of the energy prices which grants Middle East countries an arbitration role for the world in the energy supply” highlights Mr Gilles Chautard, an Internationally recognized oil & gas expert having been an Executive of several of the largest Commodities companies starting from Marc Rich, Glencore and Vitol.
However, a further major reason why the growth of oil demand will be undermined is related to price, which is resulting in the forecasts of demand being amended downwards again. The crude oil prices since mid-2014 have collapsed in both nominal and real terms. The OECD diseases are evidence that the crude prices that are decreasing, have not translated yet into the prices of the lower products where the oil consumption movements are driven.
“70% of all forms of fossil energies are being used at the moment to produce air, land and sea transportation throughout the world, which in turn has been one major factor to the fantastic economic growth mankind has experienced during the last 150 years. In order to survive and continue to serve as a cornerstone to our future development for generations to come, but now within a low carbon emissions environment where global warming is going to be severely restricted, Oil and Gas will need to be limited to products and functions with a much higher added value utilisation” according to Mr Chautard.
The question arises as to when the occurrence of the peak will take place and the aftermath of it. Will the consumption of oil collapse or decline gently? To many geopolitical assessments, this will be of vital importance regarding the transition of energy. In economies that are emerging, the experience of the OECD will not be a positive indicator of what can be expected (Widdershoven, 2021). This is because, in rising economies, the energy sector developments in the apparent decades will be susceptible to disruptive forces, rather than to an interaction that is more predictable between car ownership saturation and enhanced energy intensity trends.
Although oil is essential to the current functioning of the world economy, it remains a major contributor to greenhouse gas emissions and currently represents 32% of the world’s energy mix. To meet the commitments of the Paris Agreement to reduce carbon emissions by 45% by 2030, the exploitation of hydrocarbons must decrease. To achieve this goal, most countries are moving towards a diversification of their energy mix.
To reach this objective of limiting global warming, the States are putting in place incentives to reduce the consumption of fossil fuels. We speak of ecological taxation as the reduction of CO2 emissions from the automotive sector.
For example, France has adopted a series of regulatory and legislative measures aimed at ending the exploitation of hydrocarbons. The law of July 13, 2011, prohibits the exploitation of unconventional hydrocarbon deposits by hydraulic fracturing, and the law of December 30, 2017, puts an end to the exploitation of hydrocarbons in France by 2040. With this law, France thus becomes the first country in the world to prohibit the granting of new hydrocarbon exploration permits.
The IEA insists that “we need strong leadership from policymakers, as governments have the clearest responsibility to act and the greatest scope to shape the future.”
States should therefore promote new production and consumption patterns to limit carbon footprints (banning single-use plastic, for example), but also increase the share devoted to renewable energy such as solar and wind in the energy mix by 2030.
On top of that, banking institutions and investors will be more likely to reduce their share of investments in hydrocarbon projects for several reasons. The first is that there is a growing interest in new technologies for the sustainable energy transition. The market is now more focused on these sustainable projects than on financing hydrocarbon projects. The second reason is that the incentive policies put in place by the States are moving in a direction that favours changes in the way of production and consumption by moving towards greater sobriety, but also by supporting, sometimes even financially, ‘green’ sectors. This is the case in France, for example, which supports the green hydrogen industry and has decided to inject 7 billion euros between now and 2030 into the deployment of this low-carbon industry throughout the country. Finally, and more generally, the reputation of banks and governments that support new low-carbon initiatives is at stake, to the detriment of the hydrocarbon industry.
More globally, since the industrial revolution, growth has been based on the ability to have energy. With liberalism, we are facing a clash of thinking between democracies and authoritarian regimes. Getting rid of fossil fuels is a problem for some countries that do not accept them. Raw materials have become the elements of political negotiation. Our societies must now invest in new technologies for energy production. Indeed, it is easier to produce money (via technologies, therefore intelligence) than to produce fossil energy.
“We are going to be confronted with two models of society: the countries producing fossil fuels, which are going to be impoverished because of their now obsolete economic model based on oil, and the countries that will quickly be able to have a new economy based on intelligence and technology. Decarbonization is the answer to this problem,” explains Jonathan Dery, President of Vivo Green, which advises governments and private players on their low-carbon strategy who’s been listed in the 2022 Top 100 Leaders in Environment from the Choiseul Think Tank Forum in Paris.
“The war in Ukraine has prompted us to urgently rethink the functioning of our societal models. The stakes are high for States, as they need to regain their sovereignty through strategic independence while relying on the implementation of sustainable strategies. This is what Bruno Le Maire, the French Minister of the Economy, said when he insisted that decarbonizing France remains a national priority. We need a resilience plan for countries that need to become more independent from external dependence,” he added.
Before the conflict in Ukraine, the imperative necessity to accelerate the decarbonization of countries with the goal of achieving carbon neutrality by 2050 was hammered home, but reducing dependence on foreign suppliers, such as Russia, only accelerates this decarbonization transition.
What is certain is that new government policies are moving towards massive investment in R&D to decarbonize electrical processes.